Bill Tufts, founder of Fair Pensions for All, a Canadian organisation that campaigns on public sector pension and compensation issues, says: “It is kind of ironic for these pension plans to call out against obscene compensation in corporations and criticise their chief executives, but at the same time pay their managers at [a similar] level.”

ARTICLE TEXT

Pension funds are in a conundrum when it comes to deciding how much to pay their top executives. Many are torn between wanting to hire the best staff — paying salaries and bonuses private sector professionals are used to — and meeting budget restraints.

This dilemma has become more acute, given that many of the world’s largest public pension funds want to hire more in-house investment professionals to reduce the fees paid to external asset managers and improve returns for savers.

Belonging to this group is Australia’s largest pension scheme, the $70bn Australian Super fund, the UK’s Railpen, which oversees £20bn of assets, and the £10bn London Pension Funds Authority.

Pension trustees are also wary of adopting private sector-like salaries for new recruits in case this triggers a backlash from trade unions, social interest groups and savers.

The UK’s largest pension fund, the Universities Superannuation Scheme, drew criticism last year when raised the remuneration of its highest-paid employee, believed to be Roger Gray, its chief investment officer, from £600,000 to £900,000. The pay increase came while the fund was debating a reduction in benefits for its members, prompting condemnation from its union.

Amin Rajan, chief executive of Create Research, the consultancy, says: “Having long derided asset managers’ pay model, many trustees will find it hard to bite the bullet on pay.”

Chris Roberts, director of social and economic policy at the Canadian Labour Congress, is already concerned by the level of pay at some of Canada’s largest pension schemes.

FTfm research looking at chief executive salaries at 14 of the biggest pension plans globally shows that Canadian pension schemes are by far the most generous, a fact Mr Roberts describes as “alarming”.

He says: “Canada is beginning to be an outlier — that is a special concern. I am not convinced that these salary levels are warranted in a climate when public sector budgets are being squeezed and public sector workers are being told to tighten their belts.”

Jim Leech, the former chief executive of the independent C$140bn Ontario Teachers’ Pension Plan, was paid $7.4m in 2013, while his eventual successor, Ron Mock, was paid $2.5m in his role as vice-president of fixed income and alternatives.

Canadian pay also far exceeds executive salaries at the remaining pension schemes in the FTfm sample.

The highest-paid executive at the Australian Super fund received $1.04m last year; the chief executive of Denmark’s ATP, Carsten Stendevad, received $903,000; and Dick Sluimers, the chief executive of APG, which manages the assets of a number of Dutch pension schemes, was paid $795,000.

Mr Roberts says: “That sort of remuneration is not required to attract and retain [the best] talent for positions that have a great deal of attractiveness to anyone wanting to do public service. We do not need Wall Street levels [of pay] to retain [the best staff].”

Executive pay at the CPPIB has become particularly contentious in recent months after the pension fund drew criticism for failing to reign in high costs relating to its external investments

Mr Roberts says: “People are looking at the salaries and wondering just how rigorous cost control is at the CPPIB. The chief executive’s [salary] has caused a lot of eyebrows to go up as this is a public pension fund and these positions are meant to be about public service. I know for a fact that pressure is felt keenly inside the board. It is extremely sensitive politically.” CPPIB declined to comment.

There is also concern that handing out big salaries reduces a pension fund’s credibility when fighting excessive pay at the companies they invest in. CPPIB and Ontario voted against pay proposals at companies including Coca-Cola, the beverage company, and Barrick Gold, the Canadian miner, last year.

Bill Tufts, founder of Fair Pensions for All, a Canadian organisation that campaigns on public sector pension and compensation issues, says: “It is kind of ironic for these pension plans to call out against obscene compensation in corporations and criticise their chief executives, but at the same time pay their managers at [a similar] level.”

Other parties believe increased pay in the pension sector is necessary. The Rotman International Centre for Pension Management published a report in January concluding that pension fund governance and returns are being held back by “uncompetitive compensation structures” for senior management and investment talent.

“It will require a concerted, ongoing joint effort by pension-plan stakeholders, pension organisation boards and legislators to change the current situation,” the report found.

Keith Ambachtsheer, director of the ICPM, believes high salaries could be money well spent. He estimates that a $20bn pension fund could save a large chunk of the $800m a year typically spent on fees to external managers by hiring expensive but talented in-house investment personnel.

“Research has shown [pension funds that do this] end up winning by a lot,” he says.

The consensus is that pay for top executives and investment staff at pension schemes beyond Canada will begin creeping towards those in the private sector as well.

Scott Cornfoot, director of consultant relationships at Australia’s Queensland Investment Corporation, says: “I have heard very senior pension fund managers in Australia demand the same amount of money as a fund manager gets. Attitudes are changing.”

“It will start with investment professionals before spreading to senior business executives. An increasing number of pension boards now recognise that they are competing in an international market place.”

]]>http://fairpensionsforall.net/2015/02/08/canada-pension-fund-managers-highest-paid-in-world-pension-pay-dilemma-becomes-acute/feed/0Senate presentation on the CBC Pensionhttp://fairpensionsforall.net/2014/12/04/senate-presentation-on-cbc/
http://fairpensionsforall.net/2014/12/04/senate-presentation-on-cbc/#commentsThu, 04 Dec 2014 13:33:41 +0000Fair Pensionshttp://fairpensionsforall.net/?p=2260We were invested to testify by the Senate Communications and Transportation Committee who are looking into the financial sustainability of the CBC.

Bill Tufts was in attendance with Gene Dziadyk actuarial consultant and principal of Avenue D Consulting Company

Below is a transcript of the opening address of our presentation to the Senate Committee.

Presentation to the Senate Committee on Transport and Communications

October 27, 2014 concerning CBC pension

Gene Dziadyk at Avenue D Consulting Company, Technical Advisor

Bill Tufts at Fair Pensions for All.

We examined CBC pension a year ago for the Finance Committee of the House of Commons. Our report to the Committee, “Bigger Bailouts and Deeper Holes” looked at whether Crown Corporation pensions were broadly aligned with those of federal employees. However we strongly believe government must go further and align federal and Crown Corporation pensions with those in the broad private sector, which has seen the light. Defined Benefit
pension has all the ingredients of a perfectly formulated racket.

The CBC pension is unfair, unaffordable, under-funded and unsustainable as economic, investment and accounting models used to justify such plans are, and always were broken.

These pensions are an abomination, an abuse of public trust; unfair to Canadians funding them through taxes, unfair because they create unsustainable worker pension expectations and unfair because they divert significant resources into pensions rather than CBC core operations.

Pension promise puts taxpayer capital at risk. Why would taxpayers knowingly gear the CBC balance sheet, blowing up both sides on securities and interest-rate bets in a phony, shadowy accounting? CBC should justify and employ capital where it has advantage, its broadcasting franchise. That’s what taxpayers should demand. It has no advantage in pension business. But it claims that it does. So why isn’t CBC running world’s investment banks? Massive deficits at $500 million to accrued pension reveal they’re wrong more often than they’re right. The truth is, no one knows whether the market will rise or fall tomorrow, or next month, or next year, though many pretend to.

Who’s reading CBC Pension Report, interpreting and making recommendations based on them?

Report is misleading, a massive scheme, mountains of money (assets at $5.3 billion), plenty in the “long run” (Going Concern surplus at $849 million), but there’s just not enough money to pay everyone what they’re owed in the “short run” (Financial Position Deficit at $486 million). Report states that “positive going concern position indicates the Plan continues to hold more than sufficient assets to meet all long term obligations” but this Plan depends on future taxpayer and worker contributions exceeding future benefits by $1.5 billion. These are soft future assets, for-redistribution, as “hard” assets cannot cover what is owed for work that was done.

It cannot possibly be fair for government to use its power of taxation to privilege what has become an elite, pampered, but not a particularly distinguished group in society.

There’s a perfect storm brewing:

A tsunami of Baby Boomers set to retire.

o Public workers retire earlier, thanks to underpriced early retirement options.
o Life expectancies continue to increase.
o Economic uncertainty and very low rates of return on assets (4.2%) send them hunting for riskier assets in a world where there is no free lunch; and
o Government finances are in shambles across the country, municipalities are stressed; all levels of government are ill-equipped to bailout public sector pensions.

Pension is complex financial business, exchanging wage for promise with many moving parts between design and pricing, investment of wages to the delivery of pension, guided by disciplines of economics, capital markets, statistical mathematics, demographics, taxation, regulation and accounting. Public puts its trust in pension practitioners and unions, under watchful eye of government, but the evidence is that this trust is misplaced, or misunderstood; ideology, not science, rules. There’s no coherent intellectual foundation supporting public sector pension, which operate in defiance of capital markets and
failed predictably.

The history is that Defined Benefit was peddled as cost-and benefit superior to Defined Contribution pension. Government seeing social good gave big fat tax breaks. A huge industry, a group of self-deluded ideologues fed the public half-baked economic mush and propelled DB to the default societal coveted pension model, a remarkable achievement since there’s no money for them in DC.

Thus CBC reports pension liabilities in pretend “DB Bucks” (e.g. $.65 on $1) but pension’s paid in Canadian $ at par, exchanging DB play money until it runs out of real money or sedated workers and taxpayers wake up and realize that they’d been had.

What’s a union doing negotiating pension? Union has no business imposing and dictating terms for an entirely unrelated financial business for the enterprise to undertake, and particularly one that undermines its real business to the detriment of workers it represents. Union focus should be wages. Your predecessors left you saddled with a huge fairness and sustainability problem. You and your contemporaries in the provincial capitals and municipalities have three choices.

The Province of Newfoundland and Labrador recently announced that its pension crisis is solved, and that it’s on the path to good health. Fair Pensions for All and Mises Canada decided to investigate and were alarmed at what they found. Although some of the pension tension has been relieved, actions taken provide only very minor relief. The additional bailout announced of $2.62 billion does absolutely nothing to prevent further shortfall from happening again, and does not protect tax payers and future public sector workers.

“Bailouts for public sector pensions and retiree benefits have been committed to over $10 billion over the last decade, and that doesn’t include the annual regular payments that have been made” says Bill Tufts who is the Executive Director for Fair Pensions for All

The pension system across Canada is teetering on the brink of collapse. In 2013, the province was $5.1 billion short on its promises to government workers. This was in addition to payments over the past decade the province spent $3 billion directly bailing out the province’s pension plans, and another $2 billion for retiree health benefits.

The total cash bailouts future promises to government employee pensions and retiree benefits amount to over $ 10 Billion.

This year alone, total additional expenditures, were $556 million for pensions and $216 million for retiree benefits his year. “To put this into perspective, the province is spending the same amount of money on people who are no longer working, as it does on colleges and universities” says Bill Tufts

“The scariest part of all of this, is that the pension shortfalls can only be fixed by an annual guaranteed return of 7.25% for the next several decades, and if there isn’t an increase in life expectancy. If the rates of return are any lower, the shortfall will grow substantially. With the current economic environment, and the bond market providing negative returns, 7.25% is clearly impossible” says Vice President of Mises Canada David Clement

So what is the solution?

Newfoundland should look to the City of Saint John, who solved its pension troubles by converting them to defined contribution plans. This process protects tax payers, and most importantly ensures that the pension system is still viable for the future generation of public workers who will depend on it.

Today, pension guru Bill Tufts wrote an excellent email to Regina’s council about the boondoggle – you can see it below. Thumbs up to Bill for continuing to keep an eye on government employee pension problems across the country!

>>>

Hello Mayor and City Councilors

The city pensions has been causing you and taxpayers a lot of grief.

Unfortunately the new agreement on the plan is woefully inadequate and does nothing to solve the pension crisis. It takes the current promises made, converts them into debt and makes it the responsibility of future taxpayers and employees. The true shortfall or pension debt is about $ 1 Billion.

We urge the city to reconsider the deal and convert the plan into a defined contribution plan on a go forward basis.

Cities across North America have been succumbing to bankruptcy and a major part of their distress has been from gold-plated pensions. These are the pensions offered to public sector employees and offer a guaranteed income for life. These employees retire much earlier than the private sector with income substantially higher than an average retiree.

Recently this financial peril came to Canada. A town in Nova Scotia, Springhill was pushed into financial insolvency earlier this year, and was forced to dissolve as a town directly as an impact of its employee pension costs. The financial crisis with pensions is happening across the country, for example, the city of Montreal has seen its pension costs explode from $130 million a decade ago to over $600 million annually now. Thats almost a half billion dollars of taxpayers money not going to road repairs, helping the poor or investing in the city’s future.

Earlier this year St John’s Newfoundland (pop. 196,000) recently converted their employee plan into a defined contribution. In Nova Scotia, NSPower made this conversion as well.

There are several concerns with the plan changes proposed. We outline a major one here, the true cost of the shortfall.

Pension Shortfall

If the pensions were to close (windup) next year the last actuarial valuation (2012) estimated that the debt to the city for closing the plan would be $535 Million. This was up from the previous valuation in 2010 when the shortfall was just $239.7 million. This increase was in spite of substantial returns in the plan over the past two years.

The true cost of the shortfall is substantially higher because of the calculation used for the pension valuation. The plan for this valuation used a rate of return estimate of 6.65%. This compares to the Ontario Teachers Plan, Canada’s largest plan. that uses a return of 4.95%. Using this rate of return the shortfall in the plan would be over $ 1 Billion. The increase in the true value of the shortfall is $275 million for each 1%.

Bill Tufts discusses Pension Envy, the gap between the public sector employee and the average taxpayer.

Also the bankruptcy of Springhill Nova Scotia because of their city pensions. The episode was scheduled the week before but on Friday it came out that Springhill plan had pushed the city into financial insolvency. Towns and cities can’t become bankrupt but become financially insolvent and are forced to dissolve.

The show begins with the Springhill recap and then onto Bill’s discussion with Tom Corbebett. Tom was featured on a recent McLeans magazine cover and Bill was quoted in the same issue.

Opinion: Fundamental changes are needed to municipal pensions

However, an analysis of the pension situation shows that the current system just is not feasible.

Police are concerned that as a result of Bill 3, they would be will be forced to pay $6,000 a year into the pensions, more than double what they pay now, based on an average salary of $75,000. That’s because police officers contribute 24 per cent of annual contributions to their plan (the city the other 76 per cent), and Bill 3 would require a 50-50 split across the board for municipal workers.

Over a 30-year career, a $6,000 annual contribution adds up to $180,000. But in return, upon retirement, these officers would be due for an average pension of $59,000 — or for an average 30 years of drawing benefits, a total of almost $1.8 million.

True, promises have been made to employees up until now — and they must be respected.

That being said, isn’t it more than reasonable that an employee should contribute $6,000 a year for 30 years to collect $59,000 for 30 years?

In fact, the changes that are being proposed under Bill 3 are woefully inadequate. Only a move to a defined-contribution plan will save Quebec municipalities from financial hardship.

People who live in cities rely on the municipal services they get; however, taxpayers have seen and will continue to see a decline in the quality of their services as pension obligations have grown and will grow. Montreal is no exception.

As more money is diverted from services into pensions, to prevent overall tax increases, there is less money to fund pothole repairs and repair aging infrastructure. Sooner or later, this prompts corporations to move elsewhere, to avoid inevitable deterioration and/or higher taxes.

It is ironic that part of the argument by city unions — not just in Quebec, but elsewhere in Canada, too — in support of the pension status quo are claims that rich pensions are needed to attract quality employees. Let’s call a spade a spade. This has nothing to do with attracting future employees, and has everything to do with padding the pockets of current ones.

The current pension system will not attract quality employees; in fact, it will do the opposite and push good young employees away, ones who see that they will be picking up a substantial portion of unfunded pension costs.

These smart young workers will see older retirees from a given city’s workforce, in some cases, living on pensions worth more than what they are making while working, after payroll deductions.

The cost of these plans are skyrocketing. In Ontario, where I live, the pension plans for police and firefighters now cost 31 per cent of payroll. Despite these high contributions, the plans remain significantly underfunded. The current generation of workers cannot afford to properly fund their own pensions and pick up the additional burden of those who have gone before and are retired already.

And so rather than defined-benefit plans, which is what most cities have (plans that spell out and promise to pay out a defined set amount upon retirement), a much better option would be defined-contribution plans. Under a defined-contribution plan, the employees and employer agree to spell out a defined annual contribution into a pension plan; benefits later paid out are a function of how well that plan performs in terms of investment returns. For taxpayers, this would mean they would not be forever on the hook for more shortfalls.

Taxpayers have something else to look out for: Politicians have a conflict of interest when it comes to finding proper solutions to the pension crisis. Politicians have a vested interest in younger employees and taxpayers keeping the current plans afloat, as they are depending themselves on a significant portion of their retirement wealth coming from these very same pensions. They try to create an illusion that the minor evolutionary changes they are making are significant; yet in reality, the changes suggested so far, as in Bill 3, are woefully insufficient. A permanent fix requires major revolutionary changes.

In the context of the coming demographic tsunami that will be hitting Quebec, pensions are the first of many waves to come. Unions like to talk about fairness, and that they are fighting for the little guy. And politicians will claim to be protecting taxpayers, and in many instances this is not the case.

It is time for taxpayers to speak out, and demand fairness in the system.

Bill Tufts is founder of Fair Pensions for All, a group devoted to reform of public-service employee pensions (fairpensionsforall.net). He is an employee-benefits consultant who lives in Hamilton, Ont.

]]>http://fairpensionsforall.net/2014/09/06/fair-pensions-wades-in-on-montreal-pension-war/feed/0Pension Crisis Showdown – Who Does it Best?http://fairpensionsforall.net/2014/07/18/pension-crisis-showdown-who-does-it-best/
http://fairpensionsforall.net/2014/07/18/pension-crisis-showdown-who-does-it-best/#commentsFri, 18 Jul 2014 01:59:08 +0000Fair Pensionshttp://fairpensionsforall.net/?p=2226 Governments across North America at every level are having a pension crisis. Very few elected officials are prepared to take the issue public and talk about the extent of the meltdown, it remains hidden from taxpayers.

There are two Governors who are willing to meet the problem of pensions head on. In Illinois, Governor Quinn produced a video to explain the pension situation, highlighting Squeezy the Pension Python.

The same problems facing Quebec’s public sector pension plans are happening across the rest of Canada too, where governments at all levels are staggered by the cost of funding pensions.

In 2002, Canadians contributed $8 billion into the pension plans of public sector employees and this year over $35 billion will be contributed.

While half of Quebec seniors live on income of $20,100 or less, most retired municipal employees have retirement incomes two or three times higher under the current system.

Those who say changes will hang Montreal pensioners out to dry are disingenuous and entirely self-serving.

It’s important to remember that many municipal employees, while being members of the city’s pension plan, also receive full benefits from the Quebec Pension Plan and the Old Age Security program.

Government plans form the base of their retirement income with QPP, at age 65, providing up to $12,459 and Old Age Security, an additional $6,700.

When the funding problem became evident and Montreal-area mayors started to talk about pension reform in 2012, the average city worker’s pension was $35,000 and they retired at age 55. City managers retired at age 59 with a $51,000 pension.

A Montreal police officer leaves the force at an average age of 53, and collects $59,000 per year in pensions, while a city firefighter retires at an average age of 52 with $53,000 per year in pensions.

In the City of Montreal, the average non-government worker makes $38,900.

It’s not sustainable or fair that taxpayers must pay for retirees to receive more money than they make themselves while working.

A police officer, retiring at age 53 will collect his pension, on average until age 85. That’s another $1.8 million.

Current pension reform proposals began with some pretty basic changes.

The first was to raise the age of retirement and the other was to raise the current portion that an employee contributes plan which would be be 50/50 with taxpayers, with 70 per cent now being paid by taxpayers.

Municipal mayors have come to realize the damage that pension plan obligations are doing to the long-term economy of the cities they run.

These are putting cities into financial stress and diverting money from other essential spending areas.

The residents most affected are lower income earners who count on the programs first to be reduced or eliminated to fund pensions. They are also seeing the effect of dramatic tax increases in the services they use and the rents they pay.

All employees need to take heed or Montreal will end up like many bankrupt U.S. cities.

Rather than encouraging members to get behind the reforms, necessary to save their jobs and preserve benefits, unions have spread misconceptions about pensions to gather support for the status quo.

One common myth is that pensions were negotiated as part of a fair collective bargaining process.

In many instances, the agreements were approved by city councillors who are collecting from the same city pension pots. So, unions are negotiating for more generous pensions with people who directly benefit from the proposed increases.

This has created a perverse system of incentives and has lead public pensions down the road of unsustainability.

These pension advancements become political side deals that politicians make with the unions in return for political support. The process certainly does not seem fair for the taxpayers footing the bill.

Many municipalities have now unofficially defaulted on pensions. Expect more of the same, as cities in the Montreal area find that they are unable to provide the basic services that taxpayers pay for.

When cities do go bankrupt, retirees may find that the pensions they have counted on will not have any money left.

Employees may not have been given much motivation to makes change, but in the end they could lose everything.

The retirees of today are counting on taxpayers to continue funding these pensions. They also need contributions from current employees.

But younger employees are becoming increasingly alarmed to see retirees earning more in pensions than they themselves make working, yet are forced to contribute a significant portion of their wages into these plans. They have the very reasonable concern that despite paying big contributions, the same pensions won’t be there for them.

A fix to the pension problem is within reach

There are two things that would protect cities and taxpayers against future pension meltdowns:

1. Give current employees the option to have a defined contribution plan that will provide an adequate retirement benefit while costing them much less in today’s contributions.

2. Take the responsibility away from municipalities for managing these plans and give unions full control, with cities only being responsible for their annual contributions.

The solutions are surprisingly simple. All it takes is the courage to makes the changes happen.

​Bill Tufts is a specialist in employee benefits and pensions, and the founder of Fair Pensions For All, an advocacy group that focuses on public sector pension and compensation issues and works for major changes to make them secure and fair for both employees and taxpayers.​